BADRI PRASAD VISHWA NATH JEWELS,LUCKNOW vs. ACIT-2, LUCKNOW

(B) In this case assessment order dated 30/12/2019 was passed under section 143(3) of the Act whereby the assessee’s total income was determined at Rs.9,53,08,285/- as against returned income of Rs.1,78,55,770/-. In the aforesaid assessment order, an addition of Rs.2,54,52,515/- was made under section 40A(3) of the I.T. Act on the ground that the assessee has made payments exceeding Rs.20,000/- in cash for the purchase of old jewellery from cash customers. Further, an addition of Rs.5,20,00,000/- was made on account of deposit made in bank. The assessee’s appeal against the aforesaid assessment order was dismissed by the learned CIT(A).

(B.1) In the course of appellate proceedings in Income Tax Appellate Tribunal, a paper book containing the following particulars was filed from the assessee’s side:

Further written submissions were also filed from the assessee’s side in support of the additional grounds filed by the assessee.

(B.2) In support of admissibility of additional grounds, the assessee placed reliance on the following precedents:

(D) At the time of hearing before us, the learned Counsel for the assessee submitted that the addition of Rs.2,54,52,515/- made under section 40A(3) of the I.T. Act was contrary to law as prescribed under Rule 6DD(d) of I.T. Rules. In this regard he further submitted that the assessee did not pay the aforesaid amount of Rs.2,54,52,515/- in cash. Instead, the aforesaid amount is the adjustment against old jewellery given by the customer at the time of purchase of new jewellery. The new jewellery was sold by the assessee to the customers against the old jewellery brought by the customers and only the net amount i.e. value of new jewellery sold to the customers – value of old jewellery brought by the customers was charged from the customers. Considering the nature of transaction, and having regard to aforesaid provisions of Rule 6DD(d) of I.T. Rules, these transactions of the assessee with the customers are not hit by provisions of section 40A(3) of the Act, the learned Counsel for the assessee submitted.

(D.1) The learned Departmental Representative relied on the order of the learned CIT(A) and the Assessing Officer.

(D.2) We have heard both sides. We have perused the materials on record. We have given thoughtful consideration to provisions of Rule 6DD(d) of the I.T. Rules, which is reproduced as under:

Rule 6DD ………………………………

(d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; ……………………..

(D.2.1) In view of the aforesaid provisions of law, we are satisfied that the aforesaid amount of Rs.2,54,52,515/- is not hit by section 40A(3) of the I.T. Act read with Rule 6DD(d) of the I.T. Rules. Therefore, we direct the Assessing Officer to delete the aforesaid amount of Rs.2,54,52,515/-.

(E) As regards the aforesaid addition of Rs.5,20,00,000/- made on account of deposits made in bank, the learned Counsel for the assessee submitted, at the time of hearing, that this amount was already included in the sales declared by the assessee; and the aforesaid addition of Rs.5,20,00,000/- made resulted in double addition of the same amount. He further submitted that the assessee’s books of account were accepted by the Assessing Officer and no defect was pointed out in the books of account, which were also duly audited. He further submitted that no specific transaction of the assessee, of either purchase or sale, was shown to be fake or bogus by the Assessing Officer. He also submitted that the VAT return filed by the assessee was also accepted by VAT authorities and it should be inferred that purchase and sales of the assessee shown in the books of account were accepted by VAT authorities. He further placed reliance on the decided precedents which are referred to in the foregoing paragraph (B.1) of this order, and read out the relevant portions of these precedents. He also submitted that the addition of the aforesaid amount of Rs.5,20,00,000/- can in any case not be made under section 68 of the Act. Therefore, he submitted the addition was legally wrong and the same addition can also not be sustained under any other section once the Assessing Officer invoked section 68 of the I.T. Act. In this regard also he placed reliance on Third Member decision of ITAT reported at JMK Exports vs. ACIT [2024] 161 taxmann.com 481 (Delhi-Trib.); order of Hon'ble Allahabad High Court in Sarika Jain vs. CIT 407 ITR 254 (Allahabad)/84 taxmann.com 64 (Allahabad). Moreover, he also placed reliance on order of Co-ordinate Bench of ITAT, Lucknow; in the case of Kashinath Seth Saraf vs. DCIT (I.T.A. No.88/Lkw/2024, order dated 22/09/2025), relevant portion of which is reproduced as under:

“(F) Further the assessee has contended that in any case the addition could not have been made u/s 68 of the Act. For this purpose the assessee has relied on Third Member decision of Income Tax Appellate Tribunal in the case of JMK Exports vs. ACIT (supra). The assessee has also placed reliance on the decision of Ahmedabad Bench of the ITAT in the case of Tirupati Proteins Pvt. Ltd. Vs. The ACIT Circle-4(1)(2) Ahmedabad [1213/Ahd/2018], Vishakapatnam Bench of ITAT in the case of ACIT vs. Hirapanna Jewellers 128 taxmann.com 291; Lucknow Bench of ITAT in the case of Pradeep Kumar vs. ACIT [I.T.A. No.198/Lkw/2024] and Hon'ble Delhi High Court in the case of Kailash Jewellery House (supra). (F.1) Moreover, in the case of Sarika Jain (supra), Hon'ble Allahabad High Court, which is jurisdictional High Court, has held that Tribunal travelled beyond the scope of appeal in making an addition u/s 69A of the Act when subject matter of dispute all through before appeal in Tribunal was only with regard to addition of alleged amount u/s 68 of the Act. To quote from the order of Hon'ble Allahabad High Court, it was held as under:

“16. In the present case, it is apparent that the subject matter of the dispute all through before the Tribunal in appeal was only with regard to the addition of alleged amount of the gift received by the appellant-assessee as his personal income under Section 68 of the Act and not whether such an addition can be made under Section 69-A of the Act.

(F.2) The learned Departmental Representative relied on order of learned CIT(A) and Assessing Officer on this issue.

(F.2.1) Thus, in view of the aforesaid precedents, it is held that the aforesaid addition of Rs.9,24,71,130/- could not have been made u/s 68 of the Act and Tribunal cannot sustain the addition under any other section.

(E.1) Learned Counsel for the assessee also placed reliance on ACIT vs. Harshit Garg [2025] 176 taxmann.com 243 (Lucknow-Trib), wherein co- ordinate Bench of ITAT, Lucknow held as under:

“10. We have duly considered the facts and circumstances of the case. On examination of the assessee’s submissions, it is observed that the assessee had set up its business in the financial year 2015-16 and made sales of Rs.13,52,45,135/- during the year. This had increased to Rs.49,49,60,533/- in the financial year relevant to the assessment year in question and further increased to Rs.73,71,65,030/- in the subsequent financial year. Thus, it is evident that the business of the assessee was an expanding business and the sales had not abnormally increased in one particular month but was showing a constant trend of increasing over the years. It is also observed that the assessee had an opening stock of jewelry worth Rs.4,68,60,215.88/- on the 1st of April, 2016. The assessee has furnished before the ld. AO the month wise details of purchases and sales made after that date and the movement in the stock CO No.25/LKW/2024 Harshit Garg 10 position. From the same, it is seen that on the 1st of October 2016, the assessee had stock worth Rs.13,08,49,603.61/- in its possession and that when viewed against the closing stock of Rs. 9,53,63,490.16/- as on 31st October, 2016, had depleted a substantial amount of that stock by way of sales. The details of stock, purchases and sales that have been submitted by the assessee before the ld. AO have not been questioned or doubted in any manner by the ld. AO. Therefore, only because the month of October, 2016 saw a spurt in cash sales below the limit of Rs.2,00,000/-, for which the assessee was not in a position to furnish details of purchasers, the sales made by the assessee cannot be doubted unless the purchases, sales and stock depletion are also cast into doubt. With regard to the argument that the assessee had not submitted the sales invoices to the Assessing Officer, we observe that unless there is a finding that the stocks were not available or were diverted elsewhere, sales claimed out of those stocks cannot be doubted The ld. AO has based his additions on the belief that there exists a possibility of manipulating the exact date of sale on account of the requirement of filing of VAT return for October, 2016 on 20.11.2016, but we observe that first of all , in this case, all the cash from sales was deposited on 10.11.2016 leaving lesser scope for manipulation but even if that were so, it would not take the credits on account of those sales in his books outside the purview of sales receipts, unless it could be shown that the sales had not occurred or that the assessee did not have the stock to sell that which he claimed to have sold. It is observed that the assessee presented the cash book before the ld. AO and the ld. AO could not find any discrepancy in the same. Therefore, the credits made in the said cash book on account of cash sales, remain uncontroverted. In the circumstances, considering that the assessee has presented evidence of available stock and depletion of the said stock on account of sales and the ld. AO has not carried out any enquiry to show that any portion of the receipts on account of the sale of that stock are unexplained by such sales, no case for addition under section 68 of the Income Tax Act is made out. We are CO No.25/LKW/2024 Harshit Garg 11 therefore, in agreement with the ld. CIT(A) and uphold his decision to delete the addition of Rs.2,98,53,859/- on this account.”

(E.2) learned D.R. placed reliance on the assessment order and the impugned appellate order of learned CIT(A).

(E.2.1) We have heard both sides. We have perused the materials on record. Relevant facts are not in dispute. It is not in dispute that the audited books of account of the assessee were not rejected by the Assessing Officer under section 145 of the Act. It is not in dispute that no specific transaction of purchase and sale were shown as bogus or fake by the Assessing Officer. It is not in dispute that no discrepancy was found in the stock register and quantitative details of the assessee. It is not in dispute that the entire sales of the aforesaid amount of Rs.5,20,00,000/- has already been included by the assessee in turnover and had gone into computation of the assessee’s profit disclosed in the return of income. It is not in dispute that VAT authorities have also not found any discrepancy in the purchase and sales disclosed by the assessee in the VAT return. In view of these undisputed facts, it is further found that the assessee’s case is similar to the case of ACIT vs. Harshit Garg (supra), in which co-ordinate Bench of the ITAT in case of the assessee in the same line of business, has deleted the addition. Moreover, the contention of the learned Counsel for the assessee that section 68 was not applicable, was not countered from Revenue’s side. In view of the foregoing, we are of the view that the aforesaid addition of Rs.5,20,00,000/- is not based on credible materials and relevant considerations. Therefore, we direct the Assessing Officer to delete the aforesaid addition of Rs.5,20,00,000/-.

(F) Since we have deleted the aforesaid additions of Rs.2,54,52,515/- and Rs.5,20,00,000/-, the issue regarding admission of additional grounds and merits of the same are merely academic in nature and need not be decided. Therefore, we decline to express any opinion on them. For statistical purposes, this issue is treated as partly allowed.

(G) In the result, the appeal is partly allowed for statistical purposes.

(Order pronounced in the open court on 04/12/2025)